You have a great idea and your company is growing so fast you can hardly keep up, clearly, the market wants more of what you have to offer. There aren’t enough hours in the day to meet the demand and if you had more locations, you could sell a lot more of your product or service. You need and want to grow your business, but the difficulties related to raising capital, hiring large amounts of staff and operating a large entirely corporate-owned chain is cumbersome. It could be time to franchise your business, but how do you become a franchisor?
You will need help. Like any new endeavor, the process of becoming a franchisor has potential risks associated and the business model is unique when compared to other growth models. Good franchise systems have excellent models in place to benefit all parties involved and that doesn’t happen by accident.
To become a franchisor, there is a significant amount of planning, strategy and simply put, paperwork to do. Experienced franchise consultants can help with this franchise development process every step of the way. The key to choosing the right franchise consultant can be broken into three categories to help franchise your business:
- First, does the franchise consultant have a team behind them to support all aspects of the development process? Make sure the resources and experience exist to support the franchise development process from beginning to end.
- Second, do the team of franchise consultants have experience working with start-up franchisors who are new to the market and are working on selling their first 5 units. This is a unique part of franchise development and requires special processes.
- Third, are the franchise consultants compensated on performance and results of the franchise roll out? You will want people who are vested in your success and have a reason to make sure that the franchise model is effective.
Franchise consultants will help evaluate the franchisability of your business which must be repeatable and have opportunity for scale. They will identify your competition and research where there is opportunity for competitive advantages in the market. The first step is the franchise Strategic Plan where franchise consultants would help you determine the numbers and structure of the new franchise model.
As a new franchisor, you will need guidance in determining what a realistic franchise fee should be for your business; what royalty could be expected as a new franchisor; what kind of territory should be identified; what kind of training you will provide; what the franchisee will need to run the business; what the initial investment will be for the new franchisee along with other key aspects.
As franchisor, you will need to create a new and separate entity that will be the franchise business. After the initial planning stage, there is the Franchise Disclosure Document, also known as the FDD. That is the legal document that is presented to prospective buyers of the franchise in the pre-sale disclosure. Some states require that the FDD be registered before you can sell your franchise concept in that state.
You should retain a good franchise attorney who can guide you through this process and develop the FDD with proficiency. This document has 2 main parts, the first part discloses what you as franchisor agree to do for franchisees in plain English. The initial investment is stated again along with franchise fees, royalties, advertising requirements, a P&L, territory, duration of the agreement, trademarks and the training program.
The second half is the franchise agreement which outlines the agreement between you the franchisor and your new franchisee. After the FDD, your franchise consultant should help the new franchisor create an Operations Manual for the business. The manual outlines the steps a new franchisee will follow to have a business continue to be as successful as what you, the franchisor, have created.
Other franchise consulting services provided to ensure a successful new franchise include a marketing plan and some creative artwork for the logo, a good franchise website and effective advertising.
After the paperwork is done, your franchise consultant should carry the staff and the procedures to guide you in the right direction to start selling the concept for you, the new franchisor.
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